Chapter Eight

Managing Strategy
and Strategic
Planning
Slide content created by Charlie Cook, The University of West Alabama
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 Learning Objectives
After studying this chapter, you should be able to:
1. Discuss the components of strategy, types of strategic alternatives,
and the distinction between strategy formulation and strategy
implementation.
2. Describe how to use SWOT analysis in formulating strategy.
3. Identify and describe various alternative approaches to business-level
strategy formulation.
4. Describe how business-level strategies are implemented.
5. Identify and describe various alternative approaches to corporate-level
strategy formulation.
6. Describe how corporate-level strategies are implemented.
7. Discuss international and global strategies.

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 The Nature of Strategic
Management
• Strategy
– A comprehensive plan for accomplishing an
organization’s goals.
• Strategic Management
– A way of approaching business opportunities and
challenges aimed at formulating and implementing
effective strategies.
• Effective Strategies
– Strategies that promote a superior alignment
between the organization and its environment and
the achievement of its goals.

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 Components of Strategy
• Distinctive Competence
– Something an organization
does exceptionally well.
• Scope
– Range of markets in which an
organization will compete.
• Resource Deployment
– How an organization will
distribute its resources across
the areas in which it
competes.

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 Types of Strategic Alternatives
• Business-Level Strategy
– The set of strategic alternatives that an
organization chooses from as it conducts business
in a particular industry or a particular market.
• Corporate-Level Strategy
– The set of strategic alternatives that an
organization chooses from as it manages its
operations simultaneously across several
industries and several markets.

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 Strategy Formulation and
Implementation
• Strategy Formulation
– The set of processes involved in creating or
determining the organization’s strategies; it
focuses on the content of strategies.
• Strategy Implementation
– The methods by which strategies are
operationalized or executed within the
organization; it focuses on the processes through
which strategies are achieved.

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 Strategy Formulation and
Implementation (cont’d)
• Deliberate Strategy
– A plan, chosen and implemented to
support specific goals, that is the result of a
rational, systematic, and planned process
of strategy formulation and implementation.
• Emergent Strategy
– A pattern of action that develops over time
in the absence of goals or missions, or
despite goals and missions.

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 Figure 8.1: SWOT ANALYSIS

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 Using SWOT Analysis to
Formulate Strategy
• Evaluating Organizational Strengths
– Organizational strengths
• are skills and abilities enabling an organization to conceive
of and implement strategies.
– Common organizational strengths
• are organizational capabilities possessed by numerous
competing firms.
– Distinctive competencies
• are useful for competitive advantage and superior
performance.
– Imitation of distinctive competencies
• is duplicating another firm’s distinctive competence.

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 Using SWOT Analysis to
Formulate Strategy (cont’d)
• Evaluating Organizational Strengths (cont’d)
– Sustained competitive advantage
• occurs when a distinctive competence cannot be easily
duplicated.
• is what remains after all attempts at strategic imitations have
ceased.
– Strategic imitation is difficult when:
• Distinctive competence is based on unique historical
circumstances.
• Competitors do not understand the nature or character of a
firm’s competence.
• The competence is based on a complex phenomenon, such
as organizational culture.

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 Using SWOT Analysis to
Formulate Strategy (cont’d)
• Evaluating Organizational Weaknesses
– Organizational weaknesses
• Skills and capabilities that do not enable an organization
to choose and implement strategies that support its
mission.
– Weaknesses can be overcome by:
• investments to obtain the strengths needed.
• modification of the organization’s mission so it can be
accomplished with the current workforce.
– Competitive disadvantage
• A situation in which an organization fails to implement
strategies being implemented by competitors.

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 Using SWOT Analysis to
Formulate Strategy (cont’d)
• Evaluating an Organization’s
Opportunities and Threats
– Organizational opportunities
• Areas in the organization’s environment that
may generate high performance.
– Organizational threats
• Are areas in the organization’s environment
that make it difficult for the organization to
achieve high performance.

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 Formulating
Business-Level Strategies
• Porter’s Generic Strategies
– Differentiation strategy
• An organization seeks to distinguish itself from
competitors through the quality of its products or
services.
– Overall cost leadership strategy
• An organization attempts to gain competitive advantage
by reducing its costs below the costs of competing firms.
– Focus strategy
• An organization concentrates on a specific regional
market, product line, or group of buyers.

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 Table 8.1: Porter’s
Generic Strategies

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 Table 8.2: The Miles
and Snow Typology

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 Figure 8.2: The
Product Life Cycle

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 Implementing Business-Level
Strategies (cont’d)
• Implementing Miles and Snow’s Strategies
– Prospector
• Encourage creativity to seek out new market opportunities
and to take risks.
• Develop the flexibility to meet changing market conditions by
decentralizing its organizational structure.
– Defender
• Focus on defending its current markets by lowering its costs
and/or improving the performance of current products.
– Analyzer
• Incorporate elements of both the prospector and the defender
strategies maintain business and to be somewhat innovative.

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 Implementing Business-Level
Strategies (cont’d)
• Implementing Porter’s Generic Strategies
– Differentiation
• Marketing and sales must emphasize high-quality, high-
value image of the organization’s products or services.
– Overall Cost Leadership
• Marketing and sales focus on simple product attributes and
how these product attributes meet customer needs in a low-
cost and effective manner.
– Focus
• Either differentiation or cost leadership, depending on which
one is the proper basis for competing in or for a specific
market segment, product category, or group buyers.

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 Formulating Corporate-Level
Strategies
• Strategic Business Units
– Each business or group of businesses within an
organization is engaged in serving the same
markets, customers, or products.
• Diversification
– The number of businesses an organization is
engaged in and the extent to which these
businesses are related to one another

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 Formulating Corporate-Level
Strategies (cont’d)
• Single-Product Strategy
– An organization manufactures one product or
service and sells it in a single geographic market.
• Related Diversification
– A strategy in which an organization operates in
several different businesses, industries, or
markets that are somehow linked.
– Avoids the disadvantages and risks of a single-
product strategy.

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 Table 8.3: Bases of
Relatedness in Implementing
Related Diversification

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 Formulating Corporate-Level
Strategies (cont’d)
• Advantages of Related Diversification
– Reduces an organization’s dependence on any one of
its business activities and thus reduces economic risk.
– Reduces overhead costs associated with managing
any one business through economies of scale and
economies of scope.
– Allows an organization to exploit its strengths and
capabilities in more than one business.
– Synergy exists among a set of businesses when the
businesses’ value together is greater than their
economic value separately.

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 Formulating Corporate-Level
Strategies (cont’d)
• Unrelated Diversification
– An organization operates multiple businesses that are
not logically associated with one another.
– Advantages
• Stable of performance over time due to business cycle
differences among the multiple businesses.
• Allocation of resources to areas with the highest return
potentials to maximize corporate performance.
– Disadvantages
• Poor performance due to the complexity of managing a
diversity of businesses.
• Failing to exploit key synergies puts the firm at a competitive
disadvantage to firms with related diversification strategies.

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 Implementing Corporate-Level
Strategies
• Becoming a Diversified Firm
– Internal development of new products
• Developing products and services within the boundaries of
traditional business operations.
– Replacement of suppliers and customers
• Backward vertical integration
– Beginning a business that furnishes resources previously
handled
by a supplier.
• Forward vertical integration
– Beginning a business previously handled by an intermediary
and
selling more directly to customers.

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 Implementing Corporate-Level
Strategies (cont’d)
• Becoming a Diversified Firm (cont’d)
– Merger
• Purchase of one firm by another firm of approximately the
same size.
– Acquisition
• Purchase of a firm by another firm that is considerably larger.
– Purposes of mergers and acquisitions
• To diversify through vertical integration.
• To acquire complementary products or services linked by a
common technology and common customers.
• To create or exploit synergies that reduce the combined
organizations’ costs of doing business to increase revenues.

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 Managing Diversification
• Major Tools for Managing Diversification
– Organization structure
• A detailed discussion of organization structure is contained in
Chapter 12.
– Portfolio management techniques
• Methods that diversified organizations use to make decisions
about what businesses to engage in and how to manage
these multiple businesses to maximize corporate
performance.
– Two important portfolio management techniques
• The BCG Matrix
• The GE Business Screen

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 Managing Diversification
(cont’d)
• BCG Matrix
– A method of evaluating businesses relative to the
growth rate of their market and the organization’s
share of the market.
– The matrix classifies the types of businesses that a
diversified organization can engage as:
• “Dogs” have small market shares and no growth prospects.
• “Cash cows” have large shares of mature markets.
• “Question marks” have small market shares in quickly
growing markets.
• “Stars” have large shares of rapidly growing markets.

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 Figure 8.3: The BCG Matrix

Source: Perspectives, No. 66, “The Product Portfolio.” Adapted by permission from The Boston Consulting Group, Inc., 1970.
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 Managing Diversification
• GE Business Screen
– A method of evaluating business in a diversified
portfolio along two dimensions, each of which
contains multiple factors:
• Industry attractiveness.
• Competitive position (strength) of each firm in the portfolio.
– In general, the more attractive the industry and the
more competitive a business is, the more resources
an organization should invest in that business.

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 Figure 8.4: The GE
Business Screen

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 International and
Global Strategies
• Developing International and Global Strategies
– Global efficiencies
• Location efficiencies—seeking lower input cost locations
• Economies of scale—larger facilities result in lower costs
• Economies of scope—broadening pro
– Multimarket flexibility
• International businesses may respond to a change in one
country by implementing a change in another country.
– Worldwide learning
• The diverse operating environments of multinational
corporations (MNCs) contribute to organizational learning
that can be transferred to other operating environments.

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 Strategic Alternatives for
International Business
• Home Replication
– Utilizing a core competency or firm specific
advantage developed at home as a main
competitive weapon in foreign markets.
• Multi-Domestic Strategy
– Managing a corporation as a collection of
independent operating subsidiaries frees it to
customize its products, its marketing campaigns,
and operating techniques to meet local customer
needs.

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 Strategic Alternatives for
International Business (cont’d)
• Global Strategy
– Viewing the world as a single marketplace and
having as a primary goal the creation of
standardized goods
and services that will address the needs of
customers worldwide.
• Transnational Strategy
– Attempting to combine the benefits of scale
efficiencies pursued by a global corporation, with
the benefits and advantages of local
responsiveness of a multi-domestic corporation.

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 Key Terms
• strategy • SWOT
• strategic management • organizational strength
• distinctive competence • common strength
• scope • strategic imitation
• resource deployment • sustained competitive
• business-level strategy advantage
• corporate-level strategy • organizational
• strategy formulation weaknesses
• strategy implementation • competitive disadvantage
• deliberate strategy • organizational threat
• emergent strategy • organizational opportunity

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 Key Terms (cont’d)
• differentiation strategy • unrelated diversification
• overall cost leadership • backward vertical integration
strategy • forward vertical integration
• focus strategy • merger
• prospector strategy • acquisition
• defender strategy • BCG matrix
• analyzer strategy • GE Business Screen
• reactor strategy • home replication strategy
• product life cycle • multidomestic strategy
• diversification • global strategy
• single-product strategy • transnational strategy
• related diversification

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